What is the Financial Planning Process All About?

Most of the time, I’m working with clients who’ve never had a financial advisor before. They come to me either thinking I operate more like a hedge fund or stock picker (I don’t), or they have a very specific financial issue they’re trying to tackle. Maybe they’re buying their first home, starting a business, or getting a handle on a retirement plan. Very few could rattle off all the areas of financial planning or explain what holistic advice entails.

Yet, comprehensive financial planning is something that everyone can benefit from. Even if you’re good at the dollars and cents part, you could probably still benefit from thinking through some new financial planning strategies. While you can research a lot of this stuff on your own, you have a day job that keeps you busy. At some point it’s much easier to consult an expert than to wade through mountains of news articles. A good financial planner can also spot issues that you might not be thinking about at all.

But what IS financial planning, exactly? In essence, it’s a wide-ranging look at your financial life and includes a review of the following:

The assets you own, the asset you want to own, and how that will impact your financial goals. Examples include buying a house (versus renting), buying a car, or getting a graduate degree.

Your income sources and cash flows.

Your spending habits, saving strategies and prioritization of goals, so you can live the life you want to live. This includes a discussion about life changes like getting married, planning for kids and their education, or moving into a new career phase.

Your current retirement account(s) to see whether there’s any necessary optimization to be found in the types of accounts, contributions or investment selections you’ve chosen.

Your other investments, and the purpose for those investments, to see if the choices make sense for your financial goals.

Identification of strategies that could optimize your financial position, including those related to saving taxes, types of accounts and when to use debt.

Your estate planning documents, and if you don’t have them, a recommendation for what you do need.

As you can see, financial planning covers a lot of behavioral and life decisions and working with a fiduciary means the advice will be in your best interest. If you’re a little unclear on what that means, I think this video posted on Lifehacker sums up the difference between working with someone who is a fiduciary compared with traditional broker/sales – type of “advisor” very well.

Before you get started working with a CERTIFIED FINANCIAL PLANNER™ professional, there will be an intro phase where you learn a little more about each other, talk about your goals, and learn about the fees and services offered. There will be a discussion about expectations and deliverables too. Then, you’ll move into the data gathering phase – which can be a heavy lift – but it’s a very important process. One area of your finances can impact choices in another, so it’s really a good idea to go as deep as possible into all the areas of your financial life, even if it means you need to dig up old statements. Getting all this stuff in one place is key for moving forward.

Your financial planner will then take all this information and analyze it, coming up with recommendations and action checklist for you. At this point you’ll probably sit down with your advisor to discuss everything and get a big-picture view of items to tackle. You’ll also get to take a look at projections and a timeline for your financial goals and look at trade offs you might need to make. Because, it’s not always possible to do everything on your list right away. Then you can work out a monitoring and implementation schedule that makes sense. One good thing about working with a financial advisor over time is that you always have someone to ask questions of when you go through life changes or your plans change, and you can talk about how it might impact your financial plan.

What other questions do you have about the financial planning process?